American Airlines ticket agent Maria Treantafeles moves a suitcase among travelers' checked luggage waiting to pass through security screening in the American Airlines terminal at O'Hare International Airport in Chicago, Illinois, U.S.

Published: 12:29 January 8, 2013

Reuters

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New York and Atlanta: As American Airlines’ board meets this week, expectations are high that it will give more concrete shape to the airline’s plans to either merge with US Airways or stay independent.

The directors of parent AMR Corp plan to review a tie-up with its smaller rival against an alternative plan to exit bankruptcy as a standalone company.

But people close to the talks told Reuters they do not expect the AMR board to formally choose one option over the other next week, as detailed terms of a deal, such as price and the new management team, have yet to be hammered out.

The meeting, which starts on Wednesday, could still provide clues about whether American is finding merit in the idea of merging with US Airways while it is still restructuring in bankruptcy.

AMR chief executive Tom Horton rebuffed an aggressive takeover push from US Airways early in the bankruptcy process, saying American preferred to exit court protection on its own and consider a deal later. Now, after several months of talks with US Airways and AMR’s creditors, Horton has softened his approach at the insistence of the creditors’ committee and agreed to consider all options.

In a message to employees, Horton said there’s no specific deadline for the evaluation to end, but the company expects to “bring this to a conclusion within a matter of weeks. I can assure you we are conducting a collaborative, fact-based analysis to determine the best path forward for American.”

US Airways, which has pursued the merger for more than a year, is hoping that AMR’s board recognises the benefits of a combination and will choose to move quickly to negotiate final terms of a deal as soon as this month, the people said.

A combined American-US Airways would have revenue of $37.03 billion (Dh136 billion) based on 2011 figures, on par with the $37.11 billion delivered by United Continental Holdings, which became the world’s biggest carrier when it was formed in 2010. The new American would have 118,000 employees, compared with some 88,000 at United.

The equity split remains at issue. US Airways’ formal merger proposal in November suggested that AMR’s creditors would own 70 per cent of the merged entity, and the US Airways shareholders the remainder. AMR has said its creditors deserve closer to 80 per cent.

Still, Horton’s new tone and other recent events suggest the combination long championed by US Airways and by pilot unions at both airlines will get a serious review by AMR’s board.

With one major obstacle — labour integration — appearing closer to resolution, AMR board members will be faced with a merger scenario that is becoming more specific.

The board of the Airline Pilots Association, the union representing AMR pilots, last week approved a memorandum of understanding laying the groundwork for how it would integrate its workforce with that of US Airways.

The board of the US Airline Pilots Association voted to recommend its member ratify that MOU. The move sent a “pretty strong message” of support, a pilot at US Airways said.

Voting is likely to take several weeks. If the union’s 5,000 members ratify it, the deal would mark a major step toward ensuring relative labour peace between the unions, something many tie-ups in the airline sector have historically lacked.

AMR leaders had previously warned that labour integration challenges could render any benefits of a merger smaller than what US Airways has said.

American is the last of the three major US airlines to restructure through bankruptcy. AMR declared bankruptcy in November 2011 citing high labour costs, and eventually reached new, cost-saving contracts with its three primary unions, including its pilots, after bitter negotiations.

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